Czechia was the fifth-largest net electricity exporter in the European Union in 2020, after Norway, France, Sweden, and Germany. Most of its exports flow into Austria, the Slovak Republic, and Germany. In 2020, electricity was mainly generated from coal (41%) and nuclear energy (about 33%). Small amounts of natural gas were used as a complement in multi-fired units and in peaking units. About one-third of the country’s electricity produced from coal is generated in combined-heat-and-power plants.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
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Czechia
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
Czechia, fossil fuels have always played a big role in the energy mix and still account for the bulk of total energy supply and domestic energy production. This is due to the substantial coal resources available in the country. Ostravsko-Karvinské Doly (OKD), the country’s sole hard-coal producer and one of its largest employers, operates four deep bituminous coal mines in the Moravian-Silesian Region. There has been ongoing re-organisation in the country’s mining industry considering recent insolvency procedures in OKD, with the government announcing a gradual phasing out of mining by 2030 at the latest.
Czechia is highly dependent on imported crude oil and natural gas, as indigenous gas and oil production is negligible. In 2018, virtually all the country’s natural-gas supply originated from Russian imports under long-term contracts with Gazprom (which extend until 2035), after contracts with Norwegian suppliers expired in 2014-15. It is important to note however that approximately 30% of imported natural gas in the country are purchased through the European spot markets and may therefore come from sources other than the Russian Federation (hereafter “Russia”) or Norway. Almost all of the crude oil supplied to Czechia is imported from Former Soviet Union countries, namely Russia (56%) and Azerbaijan (33%), complementing the country’s small domestic production from Southern Moravia.
The use of renewable energy in Czechia has increased by 71% since 2009, to about 16% in 2019 of total final energy consumption. Though renewable energy has been promoted to increase energy security and reduce GHG emissions, the 2015 Update to the State Energy Policy indicates nuclear power as an essential element of the diversification strategy.
Energy prices and taxes
In Czechia, the Energy Regulatory Office (ERO) regulates the energy sector while the State Energy Inspection oversees compliance. The prices for coal and end-use natural gas are set freely by the market. However, some aspects of natural gas and electricity pricing are regulated, particularly in transmission and distribution. Exemptions to the energy or excise tax exist depending on the type of fuel, use, or source of electricity. Since 2011, Czechia has been following Council Decision 2010/787/EC, which only allows state aid for the purposes of mine closure, the treatment of health damage to miners, and the remediation of environmental liabilities related to past mining.
Figure 2. Total tax rebates and support for fossil fuels in Czechia
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
In Czechia, support is mostly provided through exemptions from the energy tax targeting certain fuels (e.g. natural gas, solid fuels or oil products) for qualified purposes (i.e. heating, agriculture, certain industrial use) and the refunds of excises taxes for diesel fuel used for agricultural purposes.
The bulk of direct transfers are granted to mining companies to fund environmental remediation programmes and to provide social benefits support to the affected workforce. New programs implemented over the last couple of years followed the same patterns as before, i.e. tax exemptions and transfers to targeted sectors or utilities. Most notably, the largest utility company in Czechia signed a EUR 3 billion liquidity agreement with the Czech Ministry of Finance.
Latest figures indicate that the fossil-fuel support measures in the country benefit the commercial, industrial, and agricultural sectors (48% of total support estimate ― TSE), residential sector (18%) and the electricity generation sector (10%).
The fiscal cost of support measures for fossil fuels in Czechia was estimated at CZK 22.57 billion in 2022. Ninety per cent (90%) was directed at end user beneficiaries, as opposed to 9% directed to firms. Support was mainly given out in the form of tax expenditures (CZK 17.82 billion) accounting for 79% of the total fiscal cost of support measures. Direct transfers amounted to CZK 4.76 billion.
The fiscal cost of support measures for fossil fuels has increased by 287% since 2017. Since last year, tax expenditures have increased by 95%, from CZK 11.78 billion to CZK 17.82 billion and direct transfers increased by 126%, from CZK 2.11 billion to CZK 4.76 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
5.744 |
5.702 |
6.267 |
6.343 |
11.779 |
17.818 |
|
Direct transfers |
0.095 |
0.096 |
1.908 |
2.107 |
2.107 |
4.756 |
|
Total |
5.839 |
5.797 |
8.175 |
8.450 |
13.887 |
22.574 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Energy Savings Tariff: The state provided support to all households facing high energy prices from October 2022. That is, those who use electricity, gas and households that produce heat through domestic boiler rooms and through central heating. From 2023, this measure was ended and supplemented by the Energy Price Cap. |
8.729 |
(Started in 2022) |
8.729 |
|
|
Excise Tax Refund for Diesel Fuel Used in Agriculture |
3.239 |
2.556 |
0.682 |
|
|
Energy Tax Exemption for Certain Uses of Natural Gas |
2.361 |
1.812 |
0.550 |
|
|
Direct transfers |
||||
|
Temporary electricity and gas support to companies: Companies with gas supply contracts with an annual consumption of more than 630 MWh, or, in the case of electricity, are connected to high or very high voltages and are at an operating loss will be eligible. At least 50% of this loss should be due to the increase in natural gas and electricity costs. Support was provided from November 2022. |
2.649 |
(Started in 2022) |
2.649 |
|
|
Use of national sources subsidies for the phase-out of mining and to erase consequences of coal mining |
1.813 |
0.002 |
1.811 |
|
|
Remediation of Environmental Damages Caused by Mining Funded from Royalties on Coal Extraction |
0.294 |
0.093 |
0.201 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Energy Savings Tariff |
The state provided support to all households facing high energy prices from October 2022. That is, those who use electricity, gas and households that produce heat through domestic boiler rooms and through central heating. From 2023, this measure was ended and supplemented by the Energy Price Cap. |
|
Excise Tax Refund for Diesel Fuel Used in Agriculture |
Diesel fuel used in agriculture in Czechia attracted until recently a partial refund (60% in most years) of the country’s excise tax, in accordance with Directive 2003/96/EC of the European Union. This changed in early 2014 when the Czech Government opted to phase out the refund as part of a suite of austerity measures. However, later that year, the government reversed its decision with the reintroduction of the measure in September 2014, allowing for retroactive refunds of fuels consumed from July 2014 onwards. Estimates of the revenue foregone due to this measure were provided directly by the Ministry of Finance. In 2017, the refund started to be granted to the animal production (retroactively from 2016), the forestry sector and fishpond cultivation (from 1 July 2017) as well. In 2019, the refund is CZK 4 380/1 000 litres for forestry, fishpond cultivation and plant production. The refund for animal production is CZK 9 500 /1 000 litres. For the year 2019, the data are biased because the tax periods changed. In 2018, the refunds were claimed monthly. In 2019 there were two options, i.e. quarterly claims (administratively more difficult) and yearly claims (easy administration). Therefore, the amount of refund in 2019 dropped, although the rates did not change significantly. On the other hand the refund will increase more than usual in 2020 because yearly claims for 2019 will be accounted here. |
|
Energy Tax Exemption for Certain Uses of Natural Gas |
The following uses of natural gas are exempt from the energy tax normally levied on sales of energy products in Czechia: use for combined heat and electricity production if that heat is subsequently supplied to households; direct uses by households for heating purposes; use for non-recreational transport by boat; use for certain mineralogical and metallurgical processes or; for uses other than as motor fuel or heating fuel. A reduced tax rate also applies to compressed and liquefied natural gas used as transport fuels. In addition, the measure covers refunds of the energy tax on natural gas that are offered to all persons with diplomatic immunity. Estimates of the revenue foregone due to this measure were provided directly by the Ministry of Finance. |
|
Temporary electricity and gas support to companies |
Companies with gas supply contracts with an annual consumption of more than 630 MWh, or, in the case of electricity, are connected to high or very high voltages and are at an operating loss will be eligible. At least fifty percent of this loss should be due to the increase in natural gas and electricity costs. Support was provided from November 2022. |
|
Use of national sources subsidies for the phase-out of mining and to erase consequences of coal mining |
A plan to terminate coal-mining activities in uneconomic underground mines and quarries in Czechia was announced by the government at the end of 1992. Through Government Resolution No. 691/1992, the state committed to finance the technical work for closing mines, rectifying the consequences of past mining activity, and covering the social costs of phasing out mining activity (e.g. health benefits for miners). Annual payments for the years 2004 to 2009 concern the Czech mining industry as a whole, including coal-mining, ore-mining, and uranium-mining. Since before that date coal mining accounted for between 50% and 70% of total payments, this inventory assumes that 50% of payments disbursed between 2004 and 2009 benefitted coal mining. This inventory uses production data from the IEA’s Energy Balances to allocate the annual amounts reported in budget documents to the various types of coal mined in Czechia. |
|
Remediation of Environmental Damages Caused by Mining Funded from Royalties on Coal Extraction |
Coal-mining companies operating in Czechia have an obligation to pay royalties on the minerals they extract, as stipulated by the Act No. 541/1991 Coll. Royalties are collected by the Regional Mining Authority and cannot exceed 10% of the sales price of extracted minerals. In the period between 1993 and 1999, the Regional Mining Authority transferred 50% of the revenue it collected to the central state budget of Czechia, and the remaining 50% to the budget of those municipalities on the territory of which mining leases were located. As stipulated by the Amendment No. 10/1993 Coll. of the Mining Act, half of the royalties transferred to the state budget (i.e. 25% of the total revenue collected from royalties on extracted minerals) had to be earmarked for the purpose of remediation of environmental damages caused by the mining of reserved deposits. The Act No. 366/2000 Coll. subsequently changed the share of the revenues from royalties going to the state and to the municipalities affected by mining. The law also modified the amount of royalties earmarked for the purpose of remediating environmental damages: since 2000, the state receives 25% of the revenues from royalties while the remaining 75% are given to municipalities where mining takes place. Forty percent (40%) of state budget revenues (10% of total) must be spent on remediation of environmental damages caused by mining activity. Only those estimates that are explicitly earmarked for remediation of environmental damages are considered: in the period 1993-2000 they accounted for 25% and in the period 2001-2009 they accounted for 10% of the total payments. This inventory uses production data from the IEA’s Energy Balances to allocate the annual amounts reported in budget documents to the various types of coal mined in Czechia. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.